The value of learning and experience ; how serial acquirers in norway utilize learning and experience to mitigate barriers to synergy realization

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GRA 19502

Master Thesis

Component of continuous assessment: Thesis Master of Science

Final master thesis – Counts 80% of total grade

The Value of Learning and Experience; How Serial Acquirers in Norway Utilize Learning and Experience to Mitigate Barriers to Synergy Realization

Navn: Anine Gulbrandsen, Stig Svenneby Kirkedam

Start: 02.03.2017 09.00

Finish: 01.09.2017 12.00

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Anine Gulbrandsen Stig Svenneby Kirkedam

Master thesis

At BI Norwegian Business School

The Value of Learning and Experience; How Serial Acquirers in Norway Utilize Learning

and Experience to Mitigate Barriers to Synergy Realization

Hand-in date:

01.09.2017

Programme:

Master of Science in Business

Strategy

Supervisor:

Helene Loe Colman Place of study:

BI Oslo

“This thesis is a part of the MSc programme at BI Norwegian Business School. The school takes no responsibility for the methods used, results found and conclusions drawn."

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Abstract

This thesis presents an overview of how serial acquirers utilize learning and experience to mitigate barriers to synergy realization. The paper examines nine serial acquirers in Norway, through semi-structured in-depth interviews, using a grounded theory approach. Our findings show that firms do indeed learn. The serial acquirers in this study utilize their ability to learn by centralizing their knowledge into teams and departments, having extensive amounts of codified knowledge that is being developed over time, and develop strategies and activities to deal with the known risks and barriers to synergy realization based on their experiences. New acquisitions bring new experiences into the firms, restarting the cycle, where the firms would further develop their codified material and update their processes.

Based on our findings; this seems to increase the success of later acquisitions. This thesis contributes to the literature on serial acquirers by taking a new approach to how serial acquiring learn, and how this knowledge is further developed to improve future processes.

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Acknowledgements

Our first and foremost acknowledgement goes to our supervisor, Helene Loe Colman; who has guided us through and helped us throughout this thesis process.

We would also like to thank the respondents who took their time to meet with us and share their knowledge and experience.

Lastly, we would like to thank the remaining staff of the Department of Strategy at BI Norwegian Business School, who during our degree has contributed to the knowledge we applied in this thesis.

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1. Introduction

Research has shown that many mergers and acquisitions fail; despite increased attractiveness for acquisitions, and focus on effective strategies in both the pre-and post-acquisition stages (Graebner, Eisenhardt & Roundy 2010; Hansell, Walker, &

Kengelbach 2014). Serial acquirers; defined as “firms that grow through series of mutually interrelated acquisitions aimed at specific targets” (Laamanen & Keil, 2008); have over the past decade become more visible as well. In 2011, they accounted for around a quarter of all M&A activity (Kengelbach & Roos, 2011).

This has spurred the interest of researchers in various fields, since much of the previous research show that M&A activity tend to fail or destruct value; rather than creating it (Ismail, Abdou & Annis 2011). Evidence from the works of Lubatkin (1983), Ravenshaft and Scherer, (1987); as well as Meschi and Metais (2013), suggest that serial acquirers don’t gain abnormal returns or high performance.

Moreover, Fowler and Schmitt (1989), Hayward (2002) and Zollo and Singh (2004) suggest the opposite.

Serial acquirers are particularly prominent in high-tech industries, and much of the research on serial acquisitions have thus been conducted in these. Previous research covers industries such as; electronics and electrical equipment (Blonigen & Taylor, 2000), IT (Colman & Lunnan, 2013), pharmaceuticals and biotechnology, computer and office equipment, packaged software, communications equipment, measuring and medical equipment, telecommunications, and health services (Laamanen &

Keil, 2008). Our study will continue the research on high-tech serial acquirers, more specifically on firms in the IT, Software, Telecom and Metallurgy; as the firms chosen for this study perform well, and are easily identified as serial acquirers.

In many cases, acquisition success; and thus the success of serial acquirers, is measured through the value added to the firm from the acquisitions. This is also known as the realization of synergies, which may be both deliberate and serendipitous (Graebner, 2004). The logical reasoning for following a serial acquisition strategy is fairly basic; as you continuously acquire, integrate and capture synergies, thus growing in size (Colman & Lunnan, 2013); and proceed to acquire new companies, you create a “snowball” effect, or strategic momentum (Amburgey & Minor, 1992).

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However, as many serial acquirers have experienced, and numerous researchers have shown; realizing synergies is difficult, and the processes are filled with obstacles and barriers. Managerial bias, misleading information from due diligence, or destruction of synergies through integration are some of the many barriers mentioned in previous research (Haleblian et al., 2009; Perry and Herd, 2004; Kale et al. 2009). Very and Schweiger (2001) argue that there are two possible solutions to these obstacles; exiting from the deal before closing, or finding a way to overcome the barriers.

The aim of our study is to dive deeper into one of the aspects of serial acquisition strategies that researchers seem to disagree the most on; which is the value of learning and experience for serial acquirers, specifically if and how they learn to overcome the barriers they face. Laamanen and Keil (2008) argue that serial acquirers can develop acquisition program capabilities; and that learning and experience may improve the performance of serial acquirers. On the other hand, Chatterjee (2009) argue that managerial bias and overconfidence may lead to some experience and learning being destructive for value creation. In addition, works by among others Ismail (2008); argue that learning, experience and capabilities do not yield positive effects for serial acquirers at all. On the flipside; Very & Schweiger’s (2001) research shows a strong link between learning and overcoming barriers related to acquisitions. The conflicting results of both serial acquisition performance and serial acquisition learning calls for more extensive research on the learning of serial acquirers, especially considering the increasing amount of serial acquirers.

We thus aim to expand on existing literature to provide an overview of the adversities the serial acquirers face throughout the processes, and through 9 in- depth interviews with separate serial acquirers in high-tech industries in Norway;

we wish to provide an overview of how serial acquirers use their experience and develop capabilities to overcome these barriers. This can provide valuable insight in an academic sense, as the study takes on several aspects of the serial acquisition programs (Laamanen and Keil, 2008; Chatterjee, 2009), and can provide valuable evidence of how serial acquirers hinders many of the common issues of M&A activity.

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From a managerial standpoint, this thesis can provide several valuable insights. For one, it seeks to give a general, yet comprehensive overview of the different barriers a serial acquirer faces across the process. Secondly, the thesis provides insight in how several of Norway’s largest serial acquirers take measures to mitigate these barriers, and how they use their own unique experience to mitigate the risks associated with this type of growth. This can provide some key points to what inexperienced managers and managers that struggle with high acquisition failure rates should focus on, and consider while implementing their own strategies.

The research question we will answer is thus as following; “How do serial acquirers utilize experience and learning to mitigate barriers to synergy realization?”

2. Theoretical background

Research on serial acquirers has shown that, as mentioned; serial acquisition strategies don’t always yield positive performance. The relation between serial acquisition strategies and the outcomes in terms of synergies, learning and experience, as well as capabilities; is also a novel field in strategic management literature, where we must draw on previous studies both on singular acquisition activity, research on serial acquirers; as well works that focus on each of the different aspects of our research question. In this section, we will mainly describe three main subjects that will be in the centre throughout our thesis: synergy realization, barriers to synergy realization, learning and serial acquisition capabilities; which follows from our research question.

2.1 Serial acquirers

The popularity of M&As can be explained by it being a somewhat “easy” way of growing, compared to other strategies for growth (Datta & Grant, 1990). Through M&A’s, a firm can quickly access new technologies, knowledge and capabilities (Ranft & Lord, 2000), as well as expand its scale and scope (Harrison et al., 1991).

Technology-based firms can for instance be acquired because an acquirer needs a certain technology or technological capability that the target firm possess (Ahuja and Katila, 2001). This is evident in that most acquisitions (83%) are done to capture technologies, market and customer knowledge, sales relationships, product

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innovation capabilities and engineering capabilities (Ranft & Lord, 2000). All of the abovementioned rationales are what we define as synergies; and realizing these synergies are key for acquisition success. In the following sections we will look deeper into what these synergies are, what barriers the serial acquirers face when trying to realize synergies, and how serial acquirers are proposed to learn from their experience.

As previously mentioned, serial acquirers are common in high tech industries. One interesting study argues that innovation and R&D internally in the firm is negatively related to M&A activity in the US electrical equipment industry (Blonigen &

Taylor, 2000). Previous studies have presented models suggesting that innovation is the only way for a firm to survive and grow (Blonigen & Taylor, 2000; Dasgupta

& Stiglitz, 1981, Reinganum, 1985, Jovanovic & MacDonald, 1994a, 1994b).

However, other works of research, such as and Gans and Stern (2000), indicate that licensing or acquisitions may substitute internal innovation and R&D. This suggests that large firms may rather obtain innovation than create it, and that serial acquisition strategies are a viable and profitable way to grow in high-tech industries.

Serial acquirers stand out because of their continuous process of acquiring new companies. The optimal acquisition rate, as well as number of acquired companies is difficult to determine, and depends on context, company size and capacity.

Kusewit (1985) suggests a rate of acquisitions that is sufficiently high to develop and maintain expertise, without being so frequent that attention to assimilation and integration is lost, and he suggests that the rate should not be lower than one acquisition per 4-5 years (Kusewit, 1985). When it comes to timing, Kusewit (1985) found that acquisitions during market lows was positively related to financial performance. Serial acquirers have many transactions, and depend on them being profitable for the strategic momentum (Amburgey & Minor, 1992) to continue.

Therefore, it is not sufficient to only find the right targets with synergy potential and strategic fit, the acquirer also need to appropriate them at the right cost, as well as acquire the right amount of companies.

2.2 Synergy Realization

Synergies take on several different forms, and each acquisition can have different motives. According to Harrison et al (1991), there are two distinct types of

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synergies; increased operational efficiency, and skill or capability transfer. Colman and Lunnan (2013) further define four forms of synergies; Financial, Operational, Human and Competitive synergies. These synergies may lead to value creation through increased market power and market shares and economies of scale and scope (Birkinshaw et al., 2000; Chatterjee, 1986: Lubatkin, 1983; Singh and Montgomery, 1987). Some synergies can also be realized without intent, defined as serendipitous value creation (Graebner, 2004). These may arise from business practices, technologies and capabilities that the acquiring firm did not find during the screening, due diligence or negotiation stage. Schweiger and Weber (1989) presents three factors that need to be present for synergy realization; Strategic fit, Optimal price and Optimal integration. Similarly, Larsson and Finkelstein (1990) argue that in order to capture synergies most efficiently, the target firm needs to be as much in line with the acquiring firm as possible, through similarity, complementarity and “in-hostility” of the takeover (Larsson & Finkelstein, 1990);

as this will lead to less problems later in the process, which we will cover more thoroughly later.

Many researchers have placed a lot of emphasis on the integration of the acquired firms, both in studies of single M&A deals and of serial acquirers. This is due to the realization of the synergies, as well as the measurable performance can be studied at this point (Capron & Mitchel, 1998). Pablo (1994) defines integration as the process of gaining interfirm coordination and control. Acquired firms needs to be integrated on several different levels; and researchers have identified several

“types” of integration addressing this. For instance, Shrivastava (1986) defines physical- (consolidation of physical assets), procedural- (standardization of work procedures) and managerial/Socio-cultural integration (organizational structures and culture). Another point of view divides the integration in two components; Task and human integration (Birkinshaw et al, 2000). Other vital aspects of the integration stage are the speed of integration (Cording, 2008); which determines when the acquiring firm may start realizing their synergies. The speed of integration is dependent on the relatedness between acquiring and acquired firm, as well as the context of the acquisition (Homburg & Bucerius, 2006). Integration depth is also dependent on the relatedness between the firms (Datta & Grant, 1990), similar to the decision on speed. Integration depth varies from full autonomy to complete absorption.

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Our basis for barrier identification lies in Very and Schweiger’s (2001) research on the link between learning and overcoming difficulties related to acquisitions, and their overview of problems an acquirer faces. We do however categorize their findings slightly differently and expand on their research in order to find more general barriers. The barriers we present span both individual stages of acquisition processes, as well as “general” barriers that is present during the entirety of an acquisition. In addition, some barriers are present because of the serial acquisition strategy.

Barriers to synergy realization:

This list shows what we have identified in the literature as the main barriers to synergy realization, which will be elaborated in the sections below.

• Unfavourable market conditions and Institutional framework

• Internal disruption and opportunistic behaviour

• Loss of (own) market focus

• Managerial Biases

• Lacking screening and targeting skills

• Misleading information from Due Diligence

• Premia (Price) paid exceeding potential synergy gains

• Top management turnover

• Turnover of key personnel

• Change reluctance and cultural clash

• Loss of productivity in acquired firm

• Destruction of synergies through integration

• Lack of target management commitment

Unfavourable market conditions and Institutional framework

Governmental institutions and the legal framework can in some instances be a major hindrance to the implementation of a serial acquisition strategy (Very &

Schweiger, 2001). For instance the Norwegian competition authority will in many instances control and in some cases reject acquisitions, due to the deal’s impact on the market. There are also laws covering when and how the acquirer can proceed with acquisitions, and the process can be long and difficult.

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Disturbances both internally in the firm and externally in the market poses another threat to the realization of synergies. Haspeslagh and Jemison (1991) argue that competitors may act opportunistic and take advantage of the disruptive situation the acquiring firm goes through, thus threatening the firm’s position. Acquisitions also disrupts the firm internally through the disruption of daily business routines, which may lead to more inefficient operations (Canella & Hambrick, 1993). For serial acquirers, managing many subsequent or even parallel acquisition processes may lead to a loss of structure and control in the acquiring firm (Hitt et al., 1998). This can lead to not only failure to capture synergies from the acquired firms, but also to severe disruption in the core of the firm. Another problem arising from the disruptive situation is the loss of market focus (Urban & Pratt, 2000). Urban and Pratt (2000) found that the focus on retaining the firm’s own client base in general seems to decline during the integration process, which may eliminate the potential gains the firm has from the acquisition.

Managerial Biases

The Managerial pitfalls, identified by among others Smit and Moraitis (2015), broadly covers a vast number of things that can go wrong due to poor management decision-making. For instance, managers may destroy shareholder value through

“Managerial self-interest” (Haleblian et al., 2009). Haleblian and Finkelstein (1999) also found that acquirers may create generalizations on false premises while being inexperienced. For instance, when they treat dissimilar acquisitions equally;

because the previous acquisition was successful. This may lead to negative performance in the next. This is related to the U-shaped performance-experience relation they found; as experience grows, their biases and generalizations decrease, thus increasing performance. (Haleblian and Finkelstein, 1999).

Lacking screening and targeting skills

Very and Schweiger (2001) also point out to a lack of experience and skill in screening and targeting. Being unable to find targets with good strategic fit is key in a serial acquisition program (Chatterjee, 2009), and failure to do so may lead to acquisitons that realize no synergies or even destruct value for the company.

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8 Misleading information from Due Diligence

Among the most common reasons for acquisition failure, is not having enough or the right information about the target company (Hitt et al, 1998; Very & Schweiger, 2001). Perry and Herd (2004) argue that the reason for much of the failing M&A activity is not due to not doing a due diligence; but the failure to do it well. The due diligence, as previously mentioned, has to cover several dimensions of the target firm; most commonly their finance, legal issues, technology, commercial aspects and human. A failure to assess any one of the dimensions may lead to problems post acquisition, or in the worst case acquisition failure. (Very & Schweiger, 2001).

The due diligence should also cover target culture and business practices in order to avoid the issues that can arise regarding people, or at the very least minimize the probability of heavy turnover and loss of customers. Harding and Rouse (2007) defines this due diligence process as “human due diligence”, and argues that far too many acquisitions are made without the proper examination of the human side of the target firms, and thus have an increased failure rate.

Premia (Price) paid exceeding potential synergy gains

The negotiation stage of the acquisition, although less researched in academia (Walsh, 1989), is an important part of the acquisition process. Paying a too high price compared to the potential value the acquirer can draw out of the target is a major barrier a serial acquirer has to face (Very & Schweiger, 2001). The reasons for paying too much are varied, but among the most common is being drawn into lengthy bidding rounds and thereby be affected by the “winner’s curse” (Very &

Schweiger, 2001; Dickie, Michel & Shaked, 1987), rushing into deals without proper due diligence (Jemison & Sitkin, 1986, Very & Schweiger. 2001), conflict of interests in the ownership of target or hostility in the negotiation and take-over (Walsh, 1989).

The market conditions themselves can also in some instances be an adversity. In certain markets (Norwegian Telecom, for instance), there are so few companies left in the market that finding targets to acquire is difficult. The economic conditions of the country can also be a hindrance, as the price the acquirer has to pay depends on market and economic conditions.

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Although some research suggests that there is no direct long term performance link between acquisition price and firm performance (Kusewit, 1985), acquiring your target at a too high price may eliminate any profit you can gain from the acquisition, or even prove fateful to your own firm. Both Kusewit (1985) and Datta, Pinches and Narayanan (1992) also found bidding in stock rather than cash had positive performance implications for serial acquirers. This finding was later reinforced in the study by Fuller, Netter and Stegemoller (2002).

Top management turnover

This barrier might not be a problem in several cases, as many acquiring firms seek to peel off the top management of their target company to begin with (Law, 1986).

However, in many other cases, a lot of the target firm’s knowledge, good processes, momentum in the market and so on, reside in and come from the top management of the firm (Ranft & Lord, 2000). In cases where the negotiations are “hard”, or hostile, the retention of the target top management team has been found to be fairly low, and Walsh, (1989) found that the negative effects of such hostile negotiations could last for as much as four years after the closing of the deal.

Turnover of key personnel

The inability to retain key personnel in the acquired unit is another barrier a serial acquirer may have to deal with. Ranft and Lord (2000) emphasise the need to retain both top executives as well as regular employees when integrating the acquired firm. Their quantitative study found that 84 % of acquisitions are done to acquire technologies, market or customer knowledge and sales relationships, product innovation capabilities or sales relationships; and that more than 40% of the knowledge and capabilities resides in other people than just the management and top executive teams. This makes it crucial to retain both top executives and other personnel.

Change reluctance and cultural clash

Much of the literature on post-acquisiton integration has focused heavily on the aspects of human integration, for instance by Birkinshaw, Bresman & Håkonsson (2000). Several other studies has focused on cultural clashes and acculturation of the acquired firms (kilde), and the reluctance to change in these; and how all of these “human” aspects of the acquisition can affect the performance of the

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acquisition. Trying to change the culture of the acquired firm can be quite difficult, as the firm often consists of several layers of culture and subcultures (Navahandi &

Malekzadeh, 1988). The acculturation model presented by Berry (1983) gives an overview of how a firm should acculturate the target in a M&A context. Due to change reluctance and cultural differences, there is a risk for painfull, slow and ineffective processes where they have to fire a lot of people or people leave on their own because of the cultural clash. (Navahandi & Malekzadeh, 1988).

Loss of productivity in acquired firm

Another problem born from integration of the acquired firm is the general drop in productivity and innovation in the acquired firm (Hitt et al., 1991). Integration causes disruption of the social structure in the acquired firm, and as shown by (Parachuri, Nerkar & Hambrick, 2006); key innovators in the acquired firms have a tendency to lose their productivity when their social status or centrality in the company changes.

Destruction of synergies through integration

Integration not matching the firm being acquired may lead to a complete acquisition failure. Acquired units with different resources and capabilities should be partners, rather than be absorbed (retain as much autonomy as possible), in order to both avoid the coordination-autonomy problem, as well as destroying the potential synergies the firm can extract through integrating too much, or too fast (Kale et al.

2009).

Lack of target management commitment

Lacking commitment in the acquired firm can be a major problem in the post- acquisition integration. A lack in commitment from the management team in the acquired unit will also affect the commitment from the firm as a whole (Weber, 1996), which can hinder the communication between the organizations, as well as reduce productivity, innovation and increase turnover. Lacking commitment can therefore be seen as a reinforcing effect on several of the other barriers.

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2.4 Learning and serial acquisition capabilities

Serial acquirers are involved in numerous learning processes that can potentially create feedback loops for the acquiring firm (Barkema & Schijven 2008). If the firm can take advantage of these positive aspects of repetitive momentum (Amburgey &

Miner, 1992), one can argue that it enables a serial acquirer to reduce the possibility of mistakes in future acquisitions (Barkema & Schijven 2008). CEO and management learning in acquisition programs has also been explored; to see whether CEOs learned from previous mistakes (Atkas, Bodt & Roll, 2009); and the learning theory has been tested, providing evidence that there are positive performance implications of management learning (Atkas, Bodt & Roll, 2007). It is also argued that serial acquirers will develop the expertise that help them distinguish dissimilarities across acquisitions, which enables the serial acquiring firm to use previous experience when appropriate (Barkema & Schijven 2008).

Haleblian and Finkelstein (1999), found that serial acquirers, rather than continuously increasing their acquisition success rate and performance, have a U- shaped relationship between performance and experience. Similarly; Hayward (2002) argues that experience per se is not sufficient to secure performance, but that the firm needs the “right experience”; that the firm benefits the most from a variety of experiences in both similar and dissimilar acquisitions (Hayward, 2002).

Zollo and Singh (2004) suggest that the application and the creative process of deliberate learning mechanisms generates collective learning in the organization, through learning “spillovers”; in addition to the direct learning from codification and articulation of the knowledge and experiences (Zollo & Singh, 2004). They also found a strong positive relation between the codification of knowledge and later acquisition performance, suggesting that these deliberate learning mechanisms indeed increase the performance of acquirers, and by extension, possibly serial acquirers. The risk related to the ambiguity and complexity of making an acquisition can be reduced with these mechanisms. If the process, plan and experience have been articulated through speech or text, the knowledge loss can be decreased when a person resigns (Kale & Singh 2007). Similarly, Trichterborn, Knyphausen-Aufse, and Schweizer (2015) found that usage of articulation indicates better acquisition processes and improved performance. Furthermore; Lanctot and Swan (2000) states that organizational learning will have a significant effect on

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performance in future acquisition transactions. However, according to Ismail (2008); single acquirers will generate higher returns than serial acquirers regardless of experience, which can indicate that the experience of a serial-acquiring firm do not have significant effect on performance.

Eisenhardt and Martin (2002) argue that dynamic capabilities are “A set of specific and identifiable processes such as product development […], they are neither vague nor tautological” (Eisenhardt & Martin, 2000); which can arguably be applied to the processes serial acquirers have. In addition; Zollo and Winter’s (2002) idea of a three-step process to develop dynamic capabilities can easily be applied to serial acquirers in this regard. Zollo and Winter (2002) developed a framework to address the role of experience accumulation, knowledge articulation, and knowledge codification processes in the evolution of dynamic capabilities, as well as operational routines. They argue that dynamic capabilities are shaped by the coevolution of these learning mechanisms. “At any point in time, firms adopt a mix of learning behaviors constituted by a semiautomatic accumulation of experience and by deliberate investments in knowledge articulation and codification activities”

(Zollo & Winter, 2002). Moreover, they note that experience accumulation happens through the steady stream of new acquisitions, and knowledge articulation and codification through whichever form of deliberate learning mechanism the serial acquirer chooses.

Serial acquirers are very different from other firms that are focusing heavily on growth, because of their need to constantly negotiate new deals and integrate new firms. Haspeslagh and Jemison (1991) argue that this results in a new form of capabilities being formed in these companies, and they believe these capabilities can be directly linked to targeting, negotiation and integration, making them more efficient in all stages of the acquisition process (Haspeslagh & Jemison, 1991).

Laamanen and Keil (2008) expands on these capabilities and calls them acquisition program capabilities, which enables the managers to identify the right number of acquisitions, how to time the individual acquisitions and what type of firms they should acquire (Laamanen & Keil, 2008). Laamanen and Keils’ (2008) define an acquisition capability as “to comprise the knowledge, skills, systems, structures and processes that a firm can draw upon when performing acquisitions”. Acquisitions target identification, negotiation abilities, and management of the actual integration

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process is examples of these capabilities. Further, Laamanen and Keil (2008) note that the development of acquisition capabilities takes place mainly on the acquisition program level, which therefore sets them partially apart from the concept of dynamic capabilities.

Acquisitions in a serial acquisition program cannot be viewed independently, as they partake in a broad acquisition strategy. (Haleblian et al., 2009; Barkema &

Schijven, 2008b). Following on this argument; these strategies require significant sequential organizational restructuring, and the performance implications of each acquisition depend on that acquisitions position in the acquisition program (Barkema & Schivjen, 2008). Chatterjee (2009) also provide evidence that acquisitions that are part of a well-structured acquisition program are more likely to succeed than one-off deals. Furthermore, the acquisition program capabilities follow on Learned et al’s (1969) argument that a firm’s key to success is the firm’s ability to find or create distinctive competences.

3. Methodology

Several factors have determined the research methodology for our paper. This section will cover the description and justification for the design and methods that are appropriate for our thesis. Given the research question; we have chosen an exploratory design for our research, to assess the phenomenon of serial acquirers in a new light. We used grounded theory as our research approach through the use of semi-structured, in-depth interviews with anonymous managers and personnel in prominent positions in serial acquiring companies. We found that this is an advantage as we can get knowledgeable answers based on first-hand experience with serial acquisition strategies. Our overall research is characterized as qualitative and the sections below will present the methodology of our study in more detail.

3.1 Research strategy

We have conducted our research through semi-structured interviews across several different high-tech industries in Norway. We used these industries due to serial acquisition strategies being frequently used in these sectors to achieve growth (Laamanen & Keil, 2008, Colman & Lunnan, 2013). Some of the firms we interviewed do numerous acquisitions each year, either to acquire technology or

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human expertise. In addition, the serial acquirers chosen for this study were all of significant size, and have all been through many acquisition processes. Hence, we chose these firms as they would be able to provide high-quality information and share valuable experience related to our research question.

We aimed for a grounded theory research strategy. The grounded theory strategy was particularly helpful to predict and explain behavior, where our main emphasis was to develop and build theory (Saunders et al., 2009, p. 149). Grounded theory will be explained more detailed in the section of data analysing. Following grounded theory, an inductive approach is exploratory and open-ended (Saunders et al., 2009, p. 41). This approach is appropriate to better understand the nature of serial acquirers by analysing and making sense of the data we collect.

Furthermore, the formulation of our research question determined which type of classification we chose; an exploratory study, which is valuable for getting insight, ask questions and to assess a phenomenon in a new light (Saunders et al., 2009, p.

139). In other words, the exploratory design enabled us to get more insight to the phenomenon of serial acquirers than what already existed, as well as to make contributions to previous theory.

3.2 Primary research sample

As our qualitative research contains recognition and selection of individuals that are particularly knowledgeable about, and experienced with topics and objects of interest; purposeful sampling is essential (Palinkas et al., 2013). For our research, we used a non-probability sampling technique (Bryman and Bell, 2015, p. 435). In this way, we selected specific members in different high-tech companies that had relevant knowledge and expertise in the area of our study. Thus, a purposeful sampling in relation to our research question was to interview members within these industries, who pursue a serial acquisition strategy.

According to Saunders et al (2009); the non-probability sampling is frequently used within business research. We contacted several firms within high-tech industries, and our main focus was on IT, software development and telecommunication industries. As a result, we have interviewed three people from firms within the IT, Software development, and Telecommunication industries. The benefits with

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conducting the interviews ourselves were that we had full control over the interview process. Moreover, we could decide the questions to be asked, and in addition get a deeper understanding of the answers provided by the respondents. In addition, we have used interview transcripts on the same topics from six previous interviews within telecommunication, metallurgy, consulting and software development industries. These interviews were mainly conducted with people from the top management team, or CEO´s; who had great experience with the acquisition process. As it was difficult to get many respondents, it was beneficial to have access to transcriptions of previous interviews. However, it can be difficult to read others’

material, as we were not present during these interviews, and their research questions differed from ours. Therefore, the information from some of the interviews was slightly limited. However, we were fortunate and found significant amounts of overlapping information that was relevant for our study.

3.3 Data collection and interview Guide

The research question and the nature of the topics of interest are considered in the choice of primary data collection method. To get an in-depth understanding and be flexible in our data collection, semi-structured interviews are applied as the main data collection method. We aimed for the use of one particular interview guide, which guided us by a list of questions specific to our topic (Bryman and Bell, 2015, p. 481). As we are part of a research project about serial acquisitions we had been provided with an interview guide, which has been our main guide throughout the interview process, although we have adjusted the guide to fit our research question (Appendix 1). We believe that the use of one specific interview guide made it easier to compare the different firms, as we would be able to cover the same topics for all the interviews. The questions of the interview guide were open-ended, which allowed for the participants to use their firms-specific and personal knowledge and acquisition experience. However, if necessary, additional questions aimed at our specific topic has been added during the interviews (Appendix 2, Interview topics).

Such questions were asked if we felt that the interview guide did not fulfil all our objectives regarding the research question. By asking additional questions and not follow the interview guide exactly the way it was outlined, the we might appear as a knowledge producing participant, rather than just following a pre-set interview guide (Leavy, 2014). We believe that the flexibility to elaborate on details and discuss various topics increased our possibility to find rich tendencies and variances

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in the respondent’s answers, and further increased our chances of getting new insights.

The interviews have been conducted at the location of the respondents. To be specific, we have met at their headquarters; due to both practical reasons as well as to secure a known atmosphere for the respondents. One hour was assigned to each interview, and the interviews were recorded and later transcribed to grasp the most essential information. The meetings with the respondents started with a brief explanation of the purpose of our research. With connections in some of the firms, we think that the participants were able to trust and be open to a higher degree.

During the interviews, we were both present, to secure reliability and in-depth information. One person had the main responsibility for following the interview guide and structuring the interview, whilst the other made the recording and asked follow-up questions if necessary. We think that by dividing responsibilities, it was easier to track the contents and secure the flow of the conversation.

The transcription of the interviews made us aware of interesting findings along the way, and whether or not it was necessary to conduct more interviews. When we felt that no new information was discovered, and started to see similar or contrasting tendencies, we was satisfied with the number of respondents. After conducting three interviews, in addition to analyzing six related transcripts, our sample provided us with detailed information that we could build our analysis and research on. In other words, we were pleased with the number of participants and the richness of the collected data.

3.4 Qualitative Data Analysis

As we in the previous sections have explained and justified how we gathered our information, this section will concern the analysis of the data collected. The previous sections justify our approach and we can see that the methodology is highly recognized as qualitative methodology (Saunders et al. 2009). The qualitative data analysis is the range of procedures and processes, which will give us some form of explanation about the phenomenon we study. To analyse qualitative data, two common strategies are used, namely analytic induction and grounded theory (Bryman and Bell, 2015, p. 581).

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As we aim to contribute to and enhance the theories on serial acquisition strategies, we will use the grounded theory method to analyze the data. Grounded theory is defined as “theory that was derived from data, systematically gathered and analysed through the research method. In this method, data collection, analysis, and eventually theory stand in close relationship to each other” (Strauss and Corbin, 1998, p. 12). Grounded theory consists of four different tools; theoretical sampling, coding, theoretical saturation and constant comparison, which we used to analyze our data (Bryman and Bell, 2015, p. 585-88). We applied the key process in grounded theory, coding, to break the data into component parts after the data sampling. The use of initial coding was appropriate. After the interviews were collected and transcribed we used line-by-line coding which means naming each line of our written data. A sentence could for example be: “Then we set in one of our strongest and most structured project-leaders, who had done it before, integrated before”; which we called use of experienced leadership/management experience. After performing our line-by-line coding, we could explain larger segments based on our established strong analytic directions from the line-by-line coding (Charmaz, 2006). This means that we for example connected the word for the given example from the line-by-line coding, leadership/management experience, and connected it with other related words.

Table 1: Example of line-by-line coding

Initial Key Comments interwievs Focused

Commercial DD

2. Den femte formen for dd er kommersiell dd.

Der undersøker vi kundene deres og hva de synes om leverandøren. Det gjør vi ofte før vi tar kontakt med selskapet, som en del av researchen.

Vi gjør markedsundersøkelser der vi ser på hvilke selskaper som har de mest fornøyde kundene. Og de er selvsagt de mest interessante

å kjøpe.

Assessing target market and

customer relations What the market

thinks of the target What companies have the most satisfied

customers?

Finding the right targets

In that way, we can get a broad insight that in the in future can be grouped and turned into categories. In time, we reached a stage where further coding was yielding no new insights to our concepts, and the need for further collection of data was no longer necessary. We saw it as important to continuously compare our data collection and concepts, in that way we did not lose information in the process. In

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the end, we had ensured information regarding how the firms utilize learning and experience to mitigate barriers.

3.5 Trustworthiness

Reliability, replicability and validity are used to verify if measures are consistent, if the study is repeatable and the conclusion well founded (Huemer, 2016).

However, these criteria are primarily relevant to quantitative research. As we are using a qualitative approach, an alternative set of criteria concerned with the trustworthiness of our study was applied (Bryman and Bell, 2015, p. 51). Merriam (2009) discuss trustworthiness with references to the traditional validity and reliability, and explore issues of those two regarding qualitative research. First of all; internal validity, could be seen in the light of our interview guides and whether or not the respondents have given us truthful answers during the interviews. It concerns that the data and emerging findings must feel saturated (Merriam, 2009).

In other words, you hear the things over and over again, and no new information surfaces as you collect more data. In addition, the credibility of the data, concerning the belivability of our findings, are assessed trough all information being verified from the interviewees, and that all information are from employees in a job position concerning the M&A function.

The reliability and the consistency of the data are questioning whether or not the research findings can be replicated, if the study is repeated will it yield the same result; and whether or not the results are consistent with the data collected (Merriam, 2009). We have transcribed and coded all interviews, and all our analysis and categories are developed from the interview data. Our overall conclusion is that the answers provided by the respondents were highly relevant and made a good fit to the context of our research and our researched phenomenon. Following this, we regard the validity of our data as good.

4. Findings

4.1 Data structure

Based on our interview data, we found that our respondents use their experience to mitigate barriers in a fairly similar manner. Our findings are structured into three main dimensions, that covers how they gain experience and learn from it, how they use it, as well as how this affects the outcomes. Thus, our main dimensions are

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named; learning activities, mitigation activities and learning outcomes. These dimensions are divided into first- and second order categories, that covers some of the most prominent findings in each dimension.

Figure 1: Learning activities

Figure 2: Mitigation activities

2. order categories 1. order categories Dimension Post-acquisition audits

and performance analysis Appropriation of new

experience Reviews and presentations Codification of best

practices Checklists and

guidelines M&A handbooks

Knowledge appropriation

Knowledge articulation

Learning activities

2. order categories 1. order categories Dimension

Experience utilization Separate Integration

teams/office Specialized (fixed)

M&A teams and Using the same managers repeatedly

Use of codified knowledge, handbooks, guidelines

Externalization of

"standard due- diligence"

Standardized targeting Standardized due-

diligence Standardized

contracting Standardized Announcement

Communication, oppenness, transparency Engagement and motivation of target Negotiation strategies

Use of local experts when entering new

market

Process Standardizations

Stage strategy development

Mitigation activities

Contract customization

Integration strategies

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Figure 3: Acquisition performance and learning outcomes

4.2 Learning activities - knowledge articulation and appropriation.

The learning activities are the deliberate and undeliberate actions the serial acquirers take in order to appropriate and articulate knowledge and experience.

These actions include the transformation of documented processes and reviews into guidelines, checklists and handbooks, transformation of tacit knowledge and know- how into documented best practices, as well as the treatment of post-audits and performance analysis. This will be further explained in the sections below. This appropriation and articulation allows the firms to gain knowledge of- and document how to mitigate the barriers that the firms most commonly face.

Knowledge Appropriation

Knowledge appropriation is the process of acquiring new knowledge, learning new lessons and getting new experiences. Following our research question; this knowledge and experience is strictly related to acquisitions, and does not cover the tacit knowledge, capabilities and other types of know-how that is not acquisition related in the targets. The following section will cover the two main categories we found within knowledge appropriation: Post-audits and performance analysis, which is primarily used to review performance of the acquisition, gain insight in what went right and wrong and get a hold of “lessons learned”. The second category covers new experience on individual and group level, which we for simplification will call learning outcomes.

2. order categories 1. order categories Dimension Standardization of

processes

Acquisition performance and learning outcomes Process improvements

Target management retention Stage strategies

Reviews and analysis - lessons learned

Communication, openness and

transparency Engagement and motivation of target Contract customization

Key employee retention Teams and

departments

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All respondents in this study reported that they had some sort of post-acquisition evaluation, either in the form of performance analysis projects, presentations for the board of directors, audits or reviews. The timespan varied among the respondents, ranging from 1 year after the acquisition announcement, to 3 years after “integration completion”. These analyses allow the firms to identify barriers post acquisition, thus preparing them for what might be an issue in the future. In addition, these reviews would help the firms to learn from their own mistakes, and improve on what they already do right.

The attributes of the acquired units seemed to determine when the audit took place.

Smaller acquisitions appeared to be integrated both faster and “deeper”, making a long-term analysis of the acquired firm difficult; hence the acquiring firms tend to do the post-acquisition audits and analyses at an earlier stage. Large acquisitions that take significantly longer to integrate were typically reviewed after 18 months to two years post-acquisition, depending on the “level of complexity and size of the integrated unit”. Acquired units that could continue with a large degree of autonomy were also easier to analyze and keep track of, and therefore allowed for both more reviewing and later analysis. One respondent reported “The companies that are allowed to continue as their own juridical units are easier to track, and we have an extremely tight follow-up and good analysis, the companies that we completely fuse in are harder to track after a couple of years, but the autonomous companies we can track for at least 3-4 years”.

The common factor however; is that all respondents would review and analyse their acquisitions based on chosen Key Performance Indexes (KPIs), after a predetermined timeframe, and that it is all well documented for future use, both what they did successfully and what needs to improve in the next process. As one respondent described; “[they] need to report how we are doing with the targets and goals we have set. And then we are no longer involved. But we are talking about working more on…, the thesis is to go back a couple of years after we made an acquisition, and say «OK, has it been a success or not? What are the key learnings from what we did? » We are working on getting this into a system, do it more structured”

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One of the respondents also highlighted the importance of honesty in the evaluation process: “We do a business review after 12 months; we have one in the beginning of the process, and then a review of the business case later. It is especially important to not make the result nicer than it is. Just because it looks better. There might still be time to correct things that do not seem right. However, if this is overlooked on purpose, it will not be possible to change it, and we lose all potential for learning”.

Following on this statement, an evaluation of the business case should be taken seriously. Moreover, it is essential to do the evaluation thoroughly because this will help the firm long-term. The employees are then able to improve or do changes that can mitigate the previously mentioned barriers and secure the success of the acquisition, as well as increase the knowledge within the firm. However, if the evaluations of the processes are sloppy, it might look good for directors in the short- term, but can be harmful in the end.

New experience

All the respondents highlighted the value of their inherent experience. This experience: That is not always documented or codified, resides in the various members of the organization, particularly in the managers that work continuously with acquisitions; as well as on a group level for the teams or departments in the firms. New experience; both good and bad, is appropriated for every new acquisition. The aim for the respondents was to learn from this experience, and use it to improve their process in the future.

One of our respondents commented that they believe their advantage over firms that perform single acquisitions is the fact that they are serial acquirers, and thus have more experience and have a long term plan on how to learn and improve for each new acquisition. Our respondent noted, “I believe it is better to be a serial acquirer.

Everything you practice a lot, you become good at, right? If you do it once every four years it’s hard to get good. If you do it all the time, you develop routines, procedures, people that know “it”, an acquisition program. You build up a lot of knowledge in the organization around you”

After the completion of the acquisition processes, new experience is developed both on group and individual level. The teams or M&A departments gain group level experience by learning how to cooperate, “fit” into their roles, and create team

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dynamics. Employees and managers gain new knowledge and insights based on their personal experiences, and would try to bring said knowledge to the table in the future processes. As one respondent noted; “Yes, the reasoning for doing it this way, is to learn more. It is too late to reverse the acquisition, but it’s done in order to see how to improve” (following a review of an acquisition). The post-audits and reviews (articulation section) that the firms use, thus serve two purposes;

documentation of lessons learned, as well as reflection on new experience.

Knowledge Articulation

The data show that on a general basis; the articulation of experience and knowledge within the firms happens in much the same way in all interviewed companies. A general trait was the emphasis on the codified knowledge to be useful for people involved in the acquisition processes, and in order for it to be so; it is essential that the right people have access to it. Our findings show that a lot of the knowledge articulation happens through codification of knowledge and experience. The first category within knowledge articulation thus covers the storage and codification process regarding acquisition experience and knowledge within the firms; and how this can affect the outcomes. In addition, we also try to identify how the knowledge is reviewed, updated or discarded.

Our findings show that many of the interviewed companies have created an M&A handbook, or other types of acquisition guidelines. These are used as developing tools rather than recipes, changing or being updated when new experiences and new knowledge is appropriated in the firms. One of our interviewees said, “When it comes to the M&A part, we have a manual that is painfully long, it is the “drivers manual”. When you get into the part of describing the due diligence and all that; it is the best in the business”. The employees actively working with the acquisition process often had the responsibility for the handbook, and the handbooks were actively updated in order to make it as up to date as possible. Another of our respondents noted, “We have this handbook for how to do acquisitions, that has been continuously improved after each acquisition we have made”. The handbooks appear to be made partially in order to standardize the acquisition process, and to transfer experience from one process to the next. As one of the respondent said:

“Now we have begun to standardize and secure that we have experience transfer from one acquisition to another”. The M&A handbooks covered in most cases how

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to find targets, how to negotiate, and how to perform the due diligence. Some other cases covered (like the first example); a full guide to the entire acquisition process.

Following the above, some of the firms also had guidelines or a handbook for how to continue after the deal was secured, which were frameworks for the integration stage, often called an integration checklist, plan, or handbook. One of the respondents described this plan as “A framework that we call an integration plan;

that includes all the things from employee contracts, IT, location and premises, and customers”, in other words; a framework for integration standardization. In one of the studied firms, the integration checklist was developed to “consist of documentation from the 3-4 biggest acquisitions in the firm, as well as general rules and best practices”; which implies to this document being both a standardization framework as well as having documentation of best practices and know-how that can be used for future reference.

The codification of knowledge seems to be important in both individual acquisition processes, as well as for the development of the acquisition program as a whole.

However, as one interviewed informant pointed out; “each acquisition is different and experienced managers is needed together with the documented knowledge”.

Several other company representatives gave similar statements; the combination of experienced managers and personnel together with the documented procedures is what makes their acquisitions run smoothly. Previous experience is the foundation of procedures that are being constantly developed. All of the firms had developed a handbook, but it is important that the routines don’t decrease flexibility, or prevent quick decision-making when this is required. As one respondent put it; “…you need to have people that are able to make decisions, that understand things quickly, and that are very experienced. Because suddenly things start moving very fast, and then it won’t help to scroll through a handbook… you need to have a feeling with… yes, you need experience”.

4.3 Knowledge and experience utilization; Measures to mitigate barriers The result of our analysis indicates that serial acquirers have a system for how they prevent barriers to synergy realization; which from their point of view is how they create value and synergies. The measures they take to secure synergies spans across three categories that are all linked to the way learning, knowledge appropriation and articulation is handled in the firms; but branch out into individual solution

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systems. The identified categories are standardization of processes and procedures, development of specific barrier mitigating activities, process-stage strategies and establishment of fixed teams and departments.

Standardization of processes Targetting

The interviewed companies in this study reported that the targeting and screening process is both crucial to their success, as well as among the most problematic parts of the strategy. Therefore, all respondents reported that they had a regulated, structured process for their targeting strategy, using either an M&A department or an experienced team for the process over time. One respondent reported that “Our entire organization in all the countries in which we operate is aware that we are running a serial acquisition strategy, and all the managers are continuously looking for targets […] so they look for targets in their respective markets, and we make contact”. Another respondent reported having “agents” similar to football managers in the markets, which would look for and screen potential targets, again continuously. One of our respondents noted that “...and if you have bought the wrong company at the wrong price it will help very little to have a good integration process, and if you buy the right company at the right price; it can go very well even if your integration process is not perfect. So a quality company at the right price; Everything starts there!”

A point to note is that continuously looking for relevant targets that fits in the acquisition program eats away at the company’s resources; as employe(es) or managers will constantly have to evaluate potential targets and run screening on different companies. This is among the most important tasks of the M&A department in several of the observed companies, which will be more thoroughly described in the next section. However; several respondents reported that they constantly had personnel in the field, doing market research, talking with competitors and other potential targets, either managers, “agents”; or other specialized personnel.

One of the interviewed firms also pointed out that the market conditions can be a driver of their acquisition program. They would typically avoid large amounts of acquisitions in economic upturns, as the prices for acquisitions would go up, and

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strike during economic downturns, as prices are usually lower. “Economic downturns is very bad for organic growth, but not when you want to acquire.

Norway is in relatively bad weather, so acquiring is not that expensive, the same in Finland, so there is a potential to make good deals there as well, Sweden is in an economic upturn however; so we stay away from there for the time being”. In other words; they would take advantage of the market conditions when possible.

Due diligence

Our findings related to the due diligence process show that all our respondents have a high degree of standardization. Most of the studied firms also choose to use external consultants for parts of the due diligence, and internal teams for other. One company would typically have five different forms of due diligence, all standardized and orchestrated under the management of the M&A department; “We do several forms of due diligence, firstly we do a financial DD; which we use [external consulting firm] for, which we have done for many years. […] If there are a lot of contracts involved, we use our [main lawfirm] for a legal DD. […] When we buy a software company we also run technological DD […] The fourth form of DD that we do is and HR DD, where we use our own HR-department to run a full assessment of all the employees as if we would be hiring them ourselves. […] The fifth DD form we do is commercial DD […] we often do this prior to contacting the target, as a part of our research”.

The set-up depends on the type of target to be analysed, but generally, standard issues such as financial due diligence and legal due diligence gets outsourced to third party consulting firms, while the acquiring firm wish to use their own team for technological, HR and commercial due diligence, which in many cases is the analysis of the acquisition rationale. “…We use the same people repeatedly, both internal and external…” A common factor among all respondents was that they will choose the same external company, and preferably the same team of consultants for the standardized due diligence, as well as using the same team repeatedly in the internalized due diligence. However, one of the largest firms in this study reported that they had internalized the entire process.

Some respondents reported that the due diligence process was led by the M&A department, and the tasks distributed from them to the different departments and